Regulators tackle fracking

Hydraulic fracturing, or “fracking,” releases oil and gas captured in rock formations and makes them easier to collect by injecting fluids—often a mixture of water, sand and various chemicals—into the ground at high pressures, which forms cracks in the rock. The New York Times reported last year that in 2009 there were almost double the number of active natural gas wells in the U.S. than in 1990, and that fracking was used in around 90 percent of them.

The advent of its widespread use in the oil and gas industry, particularly with regard to free natural gas from shale formations, has been both hailed as the solution to the country’s energy needs and vilified as a dangerous threat to the environment and public health. However, federal regulation of fracking is sparse. The public isn’t happy about it: 65 percent of respondents in a March Bloomberg poll said there needs to be more regulation of fracking.

At least 10 federal agencies have been working to study the effects of fracking and determine how best to oversee it, and on April 14, President Obama issued an executive order to coordinate their efforts. On May 4, both the Department of the Interior’s Bureau of Land Management (BLM) and the Environmental Protection Agency (EPA) released proposed measures to regulate fracking activity.

“There’s been such controversy in the area of fracturing that regulators feel a responsibility to get involved,” says Roger Patrick, counsel at Mayer Brown. “The risk to industry is that as more and more regulators become involved, these processes keep morphing, and more onerous requirements keep adding to the burden of trying to drill for oil and gas.”

Public Lands

On May 4, the BLM released a long-awaited draft rule that requires companies to publicly disclose the chemicals they use in fracturing operations on public and Indian lands. The release also included measures to ensure safe and responsible development.

The Department of the Interior has estimated that hydraulic fracturing takes place at approximately 90 percent of the wells drilled annually on public and Indian lands. Of the 13,000 wells drilled annually, around 3,400 are drilled on public or Indian lands (about 26 percent).

The rule gives industry a concession by not requiring disclosures before fracking begins, an approach environmental groups had been pushing. The May 4 draft rule requires disclosure only after fracturing occurs.

“The BLM rule will add an additional approval to well-drilling on public lands,” says Michael Mills, an environmental partner at Stoel Rives. “It also leads to the potential for litigation, most likely under NEPA [the National Environmental Policy Act], challenging decisions on whether to permit a fracking operation on federal land. It gives citizen and environmental groups another arrow in their quiver, and these lawsuits can tremendously delay a drilling operation.”

Loophole Workaround

In the Energy Policy Act of 2005, Congress exempted the injection of fluids for the purpose of hydraulic fracturing from regulation under the Safe Drinking Water Act, which gives the EPA authority to regulate the injection of fluids into the earth in various contexts. Because of this so-called “Halliburton loophole,” state regulators typically have overseen fracking on private lands. However, the Energy Policy Act’s exemption only applied to underground injections other than diesel fluids pursuant to hydraulic fracking operations. Still, in the past the EPA has delegated that authority to state regulators and had not developed rules and procedures for permitting.

The EPA changed that on May 4, issuing draft guidance on its underground injection control permitting program for oil, gas and geothermal wells that use diesel fuels in hydraulic fracturing activities, defining six types of chemicals it would categorize as diesel fuels, describing how it would treat the permitting process and outlining requirements for diesel fuels used in these operations.

Not all fracking operations use diesel fluids. An April 2011 report from the minority staff of the House Committee on Energy and Commerce sent information requests to 14 leading oil and gas service companies and concluded that out of the total 780 million gallons of hydraulic fracturing products (not including water) they used between 2005 and 2009, 30 million gallons of hydraulic fracturing fluids were diesel fuel or contained diesel fuel. It also found that out of 2,500 hydraulic fracturing products the companies used during that time period, 51 of them contained diesel. The EPA’s draft guidance has asked for comment on the current extent of diesel usage and the availability of substitutes.

“This regulation won’t necessarily change current operations in terms of [oil and gas companies] getting or having to get a permit,” Mills says, “but I think it will create more publicity for them. It will create situations where what a person may have viewed as not really comprising ‘diesel’ before [may be considered so if it includes] the defined chemicals. It will prompt states with their own permitting program, such as California, to follow the federal guidance, and where we don’t have any regulation of hydraulic fracturing, this will create more pressure to regulate it.”

Flowback and Emissions

John Freshman, a principal at Troutman Sanders Strategies, says the EPA’s action under the Safe Drinking Water Act may be a harbinger of future EPA actions addressing flowback—the wastewater discharged from the well after fracturing—under the Clean Water Act.

“The EPA believes that’s a major area left to do … particularly on pretreatment before the fluids go to any municipal wastewater treatment plants,” Freshman says. “There are no pretreatment standards right now, and that’s something the EPA is going to address.”

Fracking critics also are concerned about air pollution emitted from fractured natural gas wells.

In April the EPA addressed how it would regulate fracking under the Clean Air Act, issuing rules requiring the combustion, or “flaring,” of natural gas emissions at fracking wells to burn off methane and volatile organic compounds escaping from the pipeline. And it said that all fractured natural gas wells would someday have to use green completion equipment, which captures such emissions, but not until 2015.

The EPA compromise as well as the BLM compromise of not requiring disclosure before fracturing signal the government taking a middle-ground approach to the regulation of fracturing.

“There is an effort [on the government’s part] to try to balance environmental protection and energy production,” Patrick says. “How that plays out post-election remains to be seen, and it also remains to be seen what the final versions of the BLM rules and the EPA guidance for fracturing with diesel will look like. There is a challenge for industry in keeping up with all these initiatives, and also developing the facts they need to show that their fracturing practices are done safely.”